The United States enjoys a high level of tax compliance. The system depends on the integrity of taxpayers and the efforts of the IRS, as well as practitioners who help individuals and businesses understand their tax obligations. Especially for the small and medium-sized businesses which employ two thirds of all private sector workers, CPAs serve as general business advisers helping clients navigate various government regulations. Most businesses don’t have sophisticated tax and human resources staffs poised to explain the intricacies of healthcare reform. The volume of changes associated with the Affordable Care Act, as well as the nature and complexity of certain of its provisions, will be tough for practitioners to absorb. CPAs and small and medium-sized businesses are flummoxed by the Affordable Care Act, a problem magnified by the inability of Congress to resolve tax matters critical to business and provide even a modest amount of certainty for investment planning.
Next year’s tax filing season will be the toughest in decades for the IRS because of delayed congressional action on numerous tax provisions and the exploding problem of identity theft. On top of all this, there is the welcome possibility of tax reform. Even a large organization like the IRS has a limited number of executives capable of directing major activities. To the extent that healthcare absorbs their time, tax administration will suffer.
For well understood reasons, the IRS operates with a great deal of independence from other government agencies and the White House. I can only recall one meeting in four years where I participated in a discussion with White House staff and officials of other agencies covering a policy matter. I worry that IRS is standing on a slippery slope being so intertwined with a major domestic policy initiative.
Some opponents of the reform act are demonizing the IRS to build a case for repeal. Most striking is the disturbing comparison of the IRS to the Gestapo by the governor of Maine. Unconscionable attacks upon the IRS of this kind will take a toll on the Service and its people, and ultimately hamper revenue collection. The IRS drew down its enforcement activities in the late 90s after a savaging in the political arena. The country was running budget surpluses then and could afford it. Now we need the money.
If the IRS does execute the long list of tasks assigned to it under the Affordable Care Act, there is still an unquantifiable but real risk that healthcare reform will falter or perhaps even fail because of the sheer number of moving parts and complexity of the new system. Let’s hope reform is not a modern day version of the Vasa, the top heavy Swedish warship which sank minutes into its maiden voyage, less than 400 feet from shore. The damage to tax administration would be serious and lasting.
Everson is the vice chairman of alliantgroup, a provider of specialty tax services for small and medium-sized businesses. Everson was commissioner of Internal Revenue from 2003 through 2007. His comments here are drawn from his recent testimony to the Committee on Oversight and Government Reform of the U.S. House of Representatives.